New debt rules threaten homes of thousands


credit card and piggy bank

New rules for people in debt have come into force, which could leave hundreds of thousands of people in the UK at risk of losing their home over debts as small as £1,000. And these aren't mortgages or other 'secured' loans: they include things like payday loans and credit cards.

So what are the rules, and what are the risks?

Not entirely new

Lenders have always been able to pursue you for these 'unsecured debts'. Despite the fact that they are not taken out against the value of your property, if you were to fail to make repayments, the lender could get a county court judgement (CCJ) against you.

This judgment was previously given alongside a repayment agreement. Only if someone failed to stick to the agreed payments would the lender then apply for a 'charging order' against your property - in 2011 there were 81,000 of these.

Once you have a charging order it doesn't necessarily mean you will be forced to sell your property - but that when it is sold you will have to repay the debt as soon as you have repaid your mortgage lender.

However, in some instances a lender will force a sale - by applying to the courts. According to The Independent, just over 400 people were forced to sell their property in 2011 for this reason.

The new bits

The new rule - called the Charging Orders Regulations 2013 - came in on Friday and does two things. First, rather than requiring borrowers to have failed to stick to a repayment agreement after the CCJ - it can actually be made at the same time - without giving borrowers the opportunity to repay without losing their home.

Second, it states that these orders can be given regarding any loan which exceeds £1,000. Previously there was no minimum but they were generally used for much higher sums, and campaigners had hoped for a far higher limit.

The Stepchange Debt Charity told The Independent that it believes this will ramp up the number of charging orders that are made - because it reduces the window of opportunity for borrowers to repay, and it gives the signal to lenders that even relatively small unsecured loans should be recovered this way.

It added to Credit Today: "The likelihood is that we will see more charging orders and this will potentially create a situation in which other creditors take similar action, which in turn places undue stress onto financially vulnerable people."

It voiced these concerns after the government announced in its Budget last month that HMRC will use these orders more often, saying it was worried that the use of charging orders will prompt other creditors to take similar action, putting further pressure on many vulnerable consumers.

StepChange Debt Charity's external affairs director Delroy Corinaldi said it would: "make it harder for the government to make demands on other creditors to show forebearance."

When house prices eventually rise, the debt charity also expects the number of those charging orders that are turned into court orders to sell your property to increase. Once homeowners have sufficient equity in their property to repay their debts, they will be forced into a sale.

All this means that it's vital that you act quickly if you are struggling with debts. It's worth getting free advice as early as possible. We revealed the best places to start in a guide earlier this year.

10 top ways to add value to your home

10 top ways to add value to your home